In 2015, Arvind Subramanian, the chief economic adviser to the Indian government, headed a committee that examined possible tax rates under the GST. The committee recommended a two-rate structure comprising a low rate and a standard rate, but proposed that India should strive toward a one-rate structure in the medium-term.
Morgan Stanley economists called the four-tier structure a "compromise" that went against the initial objects of a GST.
"Looking at other countries' experience suggests that most have adopted a single tax rate when implementing GST." Singapore, for example, has a GST rate of 7 percent, while Australia's is set at 10 percent.
The standard rates for most items will be 12 per cent or 18 percent under the new system, while 5 percent tax rate will be for goods of mass consumption; the 28 percent rate was likely to be reserved for for consumer durables. Luxury cars, tobacco products and aerated beverages could attract a tax on top of the 28 percent to make up for potential revenue loss, according to the economists.
Having multiple rates theoretically meant there could be challenges in properly classifying certain goods under the right tax brackets and could unnecessarily complicate tax compliance, some experts warned.
But DBS economist Radhika Rao pointed out that a single rate would not be workable in the Indian economy, given its income disparity, federal system and the potential inflationary impact of the change.
"Even if tiered, this shift is likely to simplify the thicket of taxes in place now," she told CNBC by email. "Over time, incremental changes is likely to be brought about, which might lead to narrowing the number of tiers. But I don't think this will be done in haste, with a tiered yet efficient system carrying its own inherent benefits."